Equitable Life

Trapped Annuitants

supporting the With-Profit annuitants of Equitable Life



An Equitable Assessment of Rights and Wrongs

by Dr Michael Nassim

12.  Conclusion

12.  Conclusion

In order to cover the necessary ground, and to help assess motives and statements by comparing them to later actions and their consequences, this article has assumed an historical flavour.  This has been insightful, and what has emerged appears consistent with human nature and its condition. But if human nature and condition are hardy perennials, they grow and express themselves according to the stimuli and confines of prevailing circumstances.  In that these circumstances evolve and recombine, so do the human expressions, such that history does not repeat itself exactly.  In this case one novel and important change in circumstance may well have been the international oil crisis of 1973.  Another, which is altogether more diffuse and profound, has been a fundamental shift in zeitgeist, or spirit of the times.  No longer do we habitually enjoy or expect the Judaeo-Christian humanitarian ethos which inspired our forefathers, and enriched us in so many ways.  Its heritage includes institutions such as the Equitable Life Assurance Society. If we have to some extent forgotten our own way, we should have had no automatic right of expectation that the Equitable would remain intact, venerable though it was. Here recall the need of showing whether or not the Society’s management culture has influenced the outcome.


So now it has materialised.  Worse, the ensuing pattern of misdemeanours, as a whole but sometimes also in part, has beyond any reasonable doubt been fraudulent.  This said, the extent to which it was fraud of the first or second degree is still unclear.  The essential problem was sophistry, and there is a possibility that it began as an ad hoc invention in response to the 1982 Insurance Companies Act.  Crucially important was an overarching sophistry to the effect that a With-Profits Fund could be run on what has been euphemistically termed a negative technical solvency gap, whereas more truly (as Richard Price and William Morgan might well have argued) that gap was a moral one. It was moreover a real one because of the Society’s declared practice of paying the unconsolidated element of policies in full, such that this was policyholders’ reasonable expectation. All the important dissembling, concealments and deceits stemmed from it, including the dual presentations, firstly to a select and highly sceptical actuarial forum but then not the Society in full, and secondly of the accounts, one version for members and the other for the regulator, which enabled the Society to survive for so long. As we have seen, it also led to the transition from a With-Profits Fund for old and established members to a With-Liabilities Fund for newer and future members, which in turn could not have happened unless the fund degenerated into a Ponzi pyramid selling scheme, as unquestionably it did.  Hence also the need to find out from what level in the Society “incentivised ignorance” of sales personnel originated.  All this only serves to reinforce the conclusion that the key trouble was not simply general mis-selling, but fraud.  Marshall Field13 had rightly said: “The new regime puts great weight on the concept of disclosure- what can be described is defensible and what cannot is suspect.”  The coquette who flashes a leg at one admirer and bares a shoulder for another has by no means revealed all- she may be pure wart hog in between and underneath.


Though individual actuaries had between them spotted all the big warts, their vision of the whole was less certain, and neither they nor the Government Actuary’s Department appear to have articulated it. They had, however, been informed that the paradigm they faulted had been presented to and deemed attractive by an unspecified number of policyholders (R & H8 section 2.2.3). This may have allayed their suspicions somewhat, but it also begs the question as to why, if the paradigm was so well received, it was not thereafter disseminated to all policyholders and their representatives in reasonably comprehensive form.  The foregoing account implies that lack of awareness by the profession of its own history and failures of the regulatory network7 may have contributed to this.  Some might argue that the lessons of history are of limited relevance because actuarial science has moved on, and investments are more diverse and free than in the 19th century.  But with the possible exception of investment mixing to cover and match liabilities and the ranges of age and guarantee of policies, the underlying problems were old ones such that former lessons apply. We can moreover see that the underlying sophistries were antithetical negations of history and heritage. This must be kept in mind when evaluating the line taken by the Penrose report.  


We have also seen that the solvency gap arose because the Society’s estate had disappeared, or was in process of doing so.  Hence this is a crucial issue, and there is a need to establish whether this loss was causal and distinct, or part of a more general pattern. (It is additionally possible that overmuch of the estate had been dispensed to pre-1998 GAR policyholders, and that this lent urgency to the Society’s change of course.)  Members and outsiders have repeatedly been tempted to raid the Society’s estate, as in 1776, 1795, 1825, 1859 and most contentiously in 1816.  Price, William Morgan and his son Arthur had been much exercised to keep these within reasonable bounds11. It is therefore important to ask what influences around or even external to the Board and management may have operated on this final and fatal occasion, and if so why they were allowed.  This must be balanced against the more innocent picture of an office which was unduly influenced by commercial and marketing considerations, and which expanded too rapidly, giving away overmuch as incentives to gain new business and incurring excessive strain in the process.  It is also likely that such an office would pay more attention to the profitability of its investments than to its core responsibilities of insurance, investment safety, and certainty of outcome.  But though there may be elements of truth in this, it does not excuse the Society’s persistently duplicitous conduct.  Nor does it explain the paradigm on which that conduct was based, or the fact that eminent actuaries in the Society’s own past had repeatedly warned against this situation and that this wisdom was neglected.  Human nature and institutional life being as they are, it has several times emerged that it is both unwise and unfair to call for a witch-hunt, and certainly not until it is clearer whether fraud was of the first or second degree. Even so, there must be no residual doubt as to where in the Society’s organisation (or even via external association) the important elements of deceit arose, when they did so, and in response to what circumstances.  The coherent and consistent nature of the misdemeanours does, however, suggest that when they are traced fully backwards they will have relatively few origins.  Only then will there be a true perspective, and those who accepted the Compromise and those who rejected it should reserve their final positions until this has been gained and duly reflected upon.


All this we should expect from a reasonably comprehensive inquiry. And in that the governmental and regulatory milieu has hardly been exemplary thus far, the inquiry should be free to address this too in a satisfactory manner. A better understanding of the constraints placed upon the new Board of Directors and its resulting predicament should then also emerge.  However, the tactfulness observed by a Lord Penrose in England may be no match for the relatively unconstrained energy of an Eliot Spitzer in the United States. And if the contemporary zeitgeist has also suffused governments and the regulator we should modify our expectations accordingly; in view of their past involvement both Government and Opposition may be reluctant to grab the nettle.  Here also recall that the government of the day indemnified Lloyd’s by special Act of Parliament before the Lloyd’s Bubble burst.  On one hand this is not a good omen, and on the other it may be a further disincentive to the Opposition.  In such case Equitable victims and the electorate should remind Government of its responsibilities, and lay them plainly at its door.  That door is at the Treasury; sooner rather than later the Chancellor must be called forth to speak.